US economic growth was revised up to a 3.3% pace in yesterday second GDP estimate for the third quarter – the strongest quarterly rise in three years. Fourth-quarter estimates look upbeat too, holding out the possibility that output will rise by 3%-plus for three quarters in a row. If the Q4 prediction is correct, the US will post its best cumulative three-month advance since the 2014:Q3-2015:Q1 run.
The firmer pace of growth is confounding and in some cases disturbing Trump’s political opponents. The political-minded frustration is understandable since a strong economy expands the President’s influence, validates his policy agenda, and boosts the odds for his re-election, assuming he runs again in 2020.
For many on the left, the notion that Trump’s economic policies appear to be succeeding is surprising. Recall that in the early hours after his election victory in 2016 Paul Krugman, Nobel prize-winning economist and New York Times columnist, wrote:
we are very probably looking at a global recession, with no end in sight. I suppose we could get lucky somehow. But on economics, as on everything else, a terrible thing has just happened.
Krugman quickly retracted the forecast, which turned out to be a wise decision. Indeed, the US economy – and the global economy – are humming along at a solid clip and recession risk is virtually nil at the moment.
Not surprisingly, Trump is eager to play up the good news. On Wednesday he tweeted that “we are in record territory in all things having to do with our economy!” He also claimed, citing research by the White House’s Council of Economic Advisers, that Q3 growth would have reached 3.9% if not for the hurricanes that wreaked havoc in several states in the South in the previous quarter.
As recently as September economists were dismissing Trump’s 3% growth target. Survey data published by the National Association of Business Economists called for the macro trend to decelerate to 2.3% in 2018. Trump countered at the time that his policies, including tax cuts, were laying the groundwork for a stronger expansion: “I happen to be one that thinks we can go much higher than 3 percent. There’s no reason we shouldn’t.”
It’s getting tougher to dismiss that claim. Just yesterday Fed Chair Janet Yellen testified in Congress that economic momentum is strengthening.
Voters are increasingly giving Trump credit for the faster growth rate, according to recent polling from Quinnipiac University. As CNN reported yesterday, “For the first time, voters are now essentially evenly divided on whether President Donald Trump or former President Barack Obama is more responsible for the current state of economy.” By comparison, in March just 19% of voters said Trump was more responsible for the state of the economy vs. 67% for President Obama.
But the partisan divide is as conspicuous as ever:
Among Republicans who say the economy is in good shape, they give the credit to Trump by a two-to-one margin. Among Democrats who believe the same, Obama has a six-to-one advantage.
An objective analyst of the economy can still make a case that it’s premature to assign all the credit for growth to Trump. But a year after the election, the argument that macro momentum is due to Obama-era policies is wearing thin. At some point in next year’s second half, assuming the expansion rolls on, it’ll be time to put the idea to rest completely.
The weak spot for the giving the President credit remains the absence of a major legislative victory on the economic front. But if the tax bill that’s currently in the Senate receives the green light, which is plausible at this point, the odds will rise for extending the economic expansion well into next year and perhaps beyond.
In turn, Trump may be destined to preside over the longest post-war expansion. Good news from an economic perspective, but a political nightmare for Democrats and Trump’s opponents.
Assigning credit for economic growth (or blame for a recession) to any president is a gray area. Some degree of activity may be due to policy decisions from the White House, but how much is debatable. Regardless, presidents tend to be linked with the economic conditions that prevail while they’re in office. By that standard, Trump appears set to benefit from the US macro trend for the foreseeable future.